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Oct 22, 2008

Obama and the Tax Tipping Point

10/22/08 - WSJ.com By Adam Lerrick   --> Source

[edited] How far can society's top earners be pushed before they stop (or cut back on) producing? The incentives are easy to see. Voters who benefit from government programs will push for higher tax rates on high earners -- at least until those who create jobs and wealth stop working, stop investing, or move out of the country.

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Other nations have tried the ideology of fairness and found that reward without work brings decline. In the late 1970s and throughout the 1980s, Margaret Thatcher took on the unions and slashed taxes to restore growth and jobs in Great Britain. In Germany a few years ago, Social Democrat Gerhard Schroeder defied his party's dogma and loosened labor's grip on the economy to end stagnation. Recently in France, Nicolas Sarkozy was swept to power on a platform of restoring flexibility to the economy.

The sequence is always the same.

  • High-tax, big-spending policies force the economy to lose momentum.
  • Growth in government spending outstrips revenues.
  • Fiscal and trade deficits soar.
  • Public debt, excessive taxation, and unemployment follow.
  • The central bank tries to solve the problem by printing money.
  • International competitiveness is lost and the currency depreciates.
  • The system stagnates.
  • Then, a frightened electorate returns conservatives to power.

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